Why the !*%# Is the Rest of the World Subsidizing Suicidal Fiscal Policy in Greece?!?

I detest writing about Greece. I suggested back in 2010 that the best outcome was default, which would have been the most likely outcome of a no-bailouts approach.

And for the past five years, events have confirmed – over and over again – that this was the right approach.

So you can understand how frustrating it is to comment again on this issue.

But sometimes the policy proposals from national governments and international bureaucracies are so blindly insane that I feel compelled to restate obvious points.

Consider what is happening now. The various members of the Troika (the International Monetary Fund, the European Commission, and the European Central Bank) are pressuring Greece to make reforms in exchange for additional subsidies, handouts, and bailouts.

But since the Greek government is run by lunatics, the net result of “reforms” is more and more bad policy. To be blunt, the Troika crowd is subsidizing and encouraging a process that is resulting in suicidal tax hikes in Greece.

Greece edged closer to a last-ditch agreement with her eurozone creditors on Monday (22 June), after Alexis Tsipras’ government promised to raise an extra €8 billion over the next two years. Under the proposal submitted to eurozone ministers, the Greek government would raise just under €2.7 billion in extra revenue this year, followed by a further €5.2 billion in 2016. …Tsipras’ government has proposed to raise €645 million over the next two years by increasing health contributions to 5 percent. …As expected, the remaining proposals are almost exclusively based around new tax increases, the most significant of which is a new 12 percent levy on all corporate profits over €500,000, which the Greek government expects to bring in €1.35 billion in extra revenue. …together with €100 million per year from a new TV advertisements tax. It also wants to widen the scope of a so-called ‘luxury’ tax to cover private swimming pools, planes and boats.

Here’s a look at the breakdown of the new deal, which I got off Twitter from a pro-liberty Greek citizen (i.e., an endangered species).

…a nation that chooses governments committed to Rumpelstiltskin economics, the belief that the straw of government largesse can be spun into the gold of national wealth? Tsipras…thinks Greek voters, by making delusional promises to themselves, obligate other European taxpayers to fund them.

But George sees a silver lining to the dark cloud of Greece’s economic illiteracy.

Greeks bearing the gift of confirmation that Margaret Thatcher was right about socialist governments: “They always run out of other people’s money.” …This protracted dispute will result in desirable carnage if Greece defaults, thereby becoming a constructively frightening example to all democracies doling out unsustainable, growth-suppressing entitlements. …It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.

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– Europe wanted to force Greece into reforms, so that Greece would become France – with its structural 1% annual growth trendline.

– So they are about to compromise now. So Greece is now about to be “promoted” and become like Italy – with its structural 0.5% growth trendline.

All this is happening against the backdrop of a world that is growing at 4%, fast closing in on European standards of living. Standards that the old continent acquired when it pulled away from the rest of the world during times when it enjoyed a much bigger individual freedom advantage compared to the rest of the world. But times changed. The rest of the world escaped its once dismal individual freedom, while Europeans stalled, and even backtracked at times. Most of the ascending billions of this planet have neither the patience nor the desire to find out how Europe’s entrenched values of coercive collectivism pan out. After years of suffering under coercive collectivism, the rising sea of fast developing humanity will take no prisoners amongst the welfare complacent Europeans.

Does a growth deficit of -4% vs -3.5% compared to world average really make a difference for Greece’s ultimate fate?

Does it really make any difference for the European continent where average growth amongst its “Tiger” economies is a structural 2%? Half the world average!

Does it make a difference in terms of where Europe is ultimately headed, … soon. Is there anything in the flatter effort-reward welfare world of Europe that will motivate its citizens to become internationally competitive enough to at least MATCH the 4% average world growth trendline? and thus stave of the precipitous decline of the European continent?

So, in summary, the Greek drama is another small chapter, a small parenthesis, along a deterministic continental trajectory:

The internationally moribund low growth countries of northern Europe (~2% annual growth trendlines) are been aggressively panhandled (“let us milk your remaining productivity or we call you names”) by the virtually no growth south into more “solidarity”. So where do you think the continent is headed for as a whole? And, in this general context does it really matter what happens to Greece or how the current crisis is handled, not handled, postponed… etc?

So not only are the Northern Europeans unable to roll back their own internal low growth welfare states, but on top this, a new layer of cross country effort-reward flattening welfare is been placed on the shoulders of Europe’s few remaining most ambitious and productive.

But is all consistent with the structural social values of the continent. So,

Just as Hanover helps Dresden in a now unified East-West Germany, Berlin will help Athens in a now unifying Europe.

This is why this is a fate that Northern Europeans cannot escape.

There is a critical mass of recently established European bureaucrats in Brussels whose intrinsic survival interests are to entrench their bureaucratic power. And power follows money. So look for those bureaucrats to start handling some more and more substantial permanent flows of wealth from Europe’s North to South – as long as it lasts, that is. Because that is how you make a bureaucracy entrenched and get to live the relatively good life in Strasburg and Frankfurt: You become the gatekeeper for large transfers. As long as there remains something to transfer, that is. The gatekeepers to whom large lobbies must cater to get favorable political verdict.

Behind this stand “The People of Europe”. An unmovable juggernaut of electoral dynamics. The inhabitants of Europe’s even more laggard and more populous economies (Spain, Italy, France alone form a big population majority) form a juggernaut supermajority to whom the remaining, less populous and less laggard economies of the North must succumb. By democratic pan-European vote. And why should they not succumb when Northerners themselves hold mandatory solidarity as one of their central societal values?

A majority of Europeans keep hoping that one day, either through communal conscience or through coercion, a large enough swath of the population will work primarily for the communal good, rather than for themselves and their immediate families — and do so with enough enthusiasm to still be in the top most competitive nations of the world – and one day sustainably, at least match the 4% average annual world growth trendline.

They keep hoping and reality tells them year after year of their compounding growth deficit with respect to the rest of the world, compounding them steadily down from the first world rankings of this planet. But they keep hoping and keep declining.

In this backdrop, Greece is just a spicy distraction. But it is really irrelevant in the bigger scheme of the European trajectory.

P.S. Let me make a prediction: Decline — and European decline will be no different — brings discord. In the malaise of European decline, Greeks will get a large part of the blame for this waning. In reality, while indeed one of the most avant-garde small players in this general decline mentality, Greeks will be made a much bigger scapegoat than they actually are.

P.S.S To understand the lunacy in the vicious cycle of envy, consider the Greek tax on swimming pools and boats. Greece (by geography, tectonics, the Creator, Karma, whatever you believe) has been endowed with an environment where a pool can be one of the most economically efficient forms of incredible entertainment, since everything around is favorable and conducive to owning a $20-$50k pool. Yet, its owners are being bullied with perpetual annual taxes that are even grossly disproportionate to the value of the pool. Persecuting one of the easiest and cheapest forms of entertainment afforded by the extremely lucky Greek geography. But someone, somewhere, …perhaps even next door,… is having too much fun… so they must be gone after. Why? Because we can!

But this seemingly irrational cycle of envy does not develop overnight to find its apex in a leftist government. You get there gradually. When you reach that point, it almost seems logical.

You can feel entertained by all this in the still relative safety of dwindling old Cowboy Capitalism USA. But don’t be too complacent. At a personal level, you need some contingency escape plans, because Americans are on the same trajectory – albeit with some delay. Once that happens, the safety exits will jam. Under a rising European societal value regime, it won’t be long before Americans start voting like Europeans. Becoming Germany only halves the annual rate of your relative world prosperity decline. But does not really change the outcome.

[…] The problem is the troika doesn’t seem to understand what’s really needed in Greece. They’re pushing for lots of tax increases, which will make it hard for Greece’s private sector to generate growth. The only good news (or, to be more accurate, less bad news) is that the troika doesn’t want as many tax hikes as the Greek government would like. […]

[…] The problem is the troika doesn’t seem to understand what’s really needed in Greece. They’re pushing for lots of tax increases, which will make it hard for Greece’s private sector to generate growth. The only good news (or, to be more accurate, less bad news) is that the troika doesn’t want as many tax hikes as the Greek government would like. […]

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